Although studies of contemporary economies find robust associations between human capital and growth, past research has found no link between worker skills and the onset of industrialisation. This column resolves the puzzle by focusing on the upper tail of the skill distribution, which is strongly associated with industrial development in 18th-century France.

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Much has been written about the ‘knowledge economy’, and a large literature in economics has highlighted the importance of human capital for economic development in the modern world. Schooling is a strong predictor of per capita income and growth across countries – a pattern that emerges because skills facilitate technology adoption and innovation (Nelson and Phelps 1966, Benhabib and Spiegel 1994, Caselli and Coleman 2006). In contrast, the importance of human capital during the Industrial Revolution has typically been described as minor. In Britain – the cradle of industrialisation – education was low and inessential for economic growth (Mitch, 1993). On the other hand, Scandinavia – which was fully literate as early as 1800 – fell behind and was one of the poorest regions in Europe in the late 19th century. Cross-country growth regressions for the period of industrialisation lead to the conclusion that "literacy was generally unimportant for growth" (Allen 2003, p.433). The stark contrast to the findings in modern data is puzzling: did the escape from millennia of stagnation really occur without a role for human capital, one of the most important determinants of modern growth?

The previous non-results are based on education or literacy as measures of the average worker’s skills. This may veil the role of scientifically savvy engineers and entrepreneurs at the top of the skill distribution. These upper tail skills are crucial for growth in modern economies – for example, math and science skills of students matter more for development than average years of schooling (Hanushek and Kimko 2000), and entrepreneurial ability boosts firm performance (Bloom and Van Reenen 2007, Gennaioli et al. 2013). In the historical context, Mokyr and Voth (2009, p.35) conclude that "the Industrial Revolution was carried not by the skills of the average or modal worker, but by the ingenuity and technical ability of a minority."

In a recent working paper, we ask whether distinguishing between upper-tail and average skills may reinstate the importance of human capital during the transition from stagnation to growth (Squicciarini and Voigtländer 2014). Answering this question hinges on a historical proxy for the thickness of the upper tail, i.e., the presence of knowledge elites. We use a novel measure from the eve of industrialisation in mid-18th century France: subscriptions to the Encyclopédie – the cornerstone of the Enlightenment, representing the most important collection of scientific and technological knowledge at the time. The age of enlightenment saw the emergence of the knowledge economy, and the encyclopedia was at its forefront (Mokyr 2002). A substantial share of its subscribers were progressively minded and scientifically interested noblemen, administrative elites, and entrepreneurs. We compute subscriber density for almost 200 French cities and use it as a proxy for the local concentration of knowledge elites. Figure 1 shows that regions with high and low values are relatively evenly distributed across France. In addition, we find that subscriber density is uncorrelated with literacy rates in the same period, which allows us to differentiate between average and upper tail skills.

Figure 1. Encyclopedia subscriber density and literacy rates

Notes: The figure shows the spatial distribution of encyclopedia subscribers per 1,000 city inhabitants in the second half of the 18th century. Data on subscribers are from Darnton (1973) and data on city population are from Bairoch et al. (1988).

Empirical results

We use several common proxies for economic development and relate them to subscriber density. First, we find that subscriber density is strongly associated with city growth after 1750 – when French industrial growth began – but not before that date. Figure 2 illustrates this finding, using a consistent set of cities that are observed over our full sample period. The coefficient on subscriber density is almost six times larger after 1750, and the difference is statistically highly significant. We also confirm the earlier non-findings for average skill proxies: local literacy in 18th century France is not associated with city growth.

Figure 2. Encyclopedia subscriptions and city growth – before and after 1750

Notes: The figure plots average annual city growth in France against encyclopedia subscriber density, after controlling for a set of local characteristics (see Squicciarini and Voigtländer 2014 for detail). The left panel uses the preindustrial period 1400-1750. The right panel examines the same cities over the period of French industrialisation, 1750-1850. Average annual city growth was 0.23% and 0.48% over the two periods, respectively.

In addition to city growth, we also use other historical indicators of development. These confirm the pattern. Soldier height – a common proxy for income – is strongly associated with encyclopedia subscriptions in 1830, but not prior to 1750. In addition, mid-19th century census data for almost 90 French departments reveal that those with higher subscriber density had significantly higher disposable income, industrial wages, and industrial employment.

Interpretation and discussion

When interpreting our results, we do not argue that the encyclopedia was ‘dropped’ randomly over France and then caused scientific knowledge at the local level. Knowledge elites were present prior to 1750, and their spatial distribution was stable over time. We show that pre-1750 scientific societies are a strong predictor of subscriber density. In addition, locations with higher subscriber density brought up a larger proportion of famous people in scientific professions between the 11th and 19th centuries, and they also presented more innovations (per capita) at the 1851 London World Fair. In sum, there is compelling evidence that subscriber density reflects a stable spatial distribution of knowledge elites. Our argument is that these elites began to foster growth when knowledge became economically ‘useful’, i.e., with the onset of industrialisation. This follows Jacob’s (1997) and Mokyr’s (2002, 2005) seminal work on the rising importance of advanced knowledge during the period of Industrial Enlightenment.

How did local knowledge elites affect development? Historical evidence suggests a close connection between scientific knowledge and entrepreneurship. This worked via technology adoption – entrepreneurs often learned about the existence of modern technology from scientific publications – but also via innovation. One representative example is that of the Koechlin and Dollfus families in Mulhouse, who descended directly from the famous mathematician Bernouilli and had close ties to other famous scientific dynasties such as the Curies and the Friedels. The Koechlin-Dollfus families ran prosperous firms in cotton and wool spinning, and founded the first cloth-printing firm in France. Their entrepreneurial success derived directly from scientific activity – for example, major innovations in bleaching by the successful chemist Daniel Dollfus-Ausset (1797-1879). The Koechlin and Dollfus families were also co-founders of the Société industrielle de Mulhouse, which promoted technological progress via conferences and publications, fostering local industrial development. A plethora of other historical examples illustrate that knowledge elites affected local industrial development via the dialogue between scientists and entrepreneurs, via scientifically savvy public officials supporting entrepreneurship, and via members of the elite themselves operating businesses.

Evidence from more than 14,000 French firms in 1837 further supports our argument. We show that firms in modern, innovative sectors (but not in traditional ones) were much more productive in regions with higher subscriber density, even after controlling for sector and location fixed effects. This suggests that upper tail knowledge favored the adoption and efficient operation of innovative industrial technology.

Our results suggest that human capital – in the form of its upper tail – did matter for industrialisation. We thus resolve the puzzling contrast between its seeming non-importance in historical data, versus its central role in modern development. However, this does not necessarily mean that knowledge elites were a fundamental cause of the onset of growth. The spatial variation in scientific knowledge may be due to deeper determinants such as culture, institutions, or geography. Correspondingly, we interpret upper tail knowledge as a proximate driver of industrial growth, i.e., as a factor that influences the production function – possibly in combination with other proximate determinants. Among the latter, physical capital is probably the most relevant in the context of our study: encyclopedia subscribers typically came from the progressive bourgeoisie and nobility, who were not only part of the knowledge elite, but also had access to finance. A critical challenge for our interpretation is thus: could financial means have been the dominant factor, while upper tail knowledge was only a sideshow without economic relevance? Our results suggest that this is unlikely: subscriber density is not associated with growth before modern technology became available; and even thereafter, the presence of noble families alone (as a proxy for wealth) does not explain growth – it only does where noble families overlap with high subscriber density. Thus, deep pockets alone are unlikely to explain industrial growth: even the most affluent individuals could not invest in technology they did not know about.

Conclusion

Our results have important implications for economic development: while improvements in basic schooling raise wages, greater worker skills alone are not sufficient for industrial growth. Instead, upper tail skills – even if confined to a small elite – are crucial, fostering growth via innovation and the diffusion of modern technology. In this respect, our findings resemble those in today’s economies, where the existence of a social class with high education is crucial for development (Acemoglu et al. 2011), entrepreneurial skills matter beyond those of workers (Gennaioli et al. 2013), and scientific education is key (Hanushek and Kimko 2000).

References

Acemoglu, D, T A Hassan, and J A Robinson (2011), “Social Structure and Development: A Legacy of the Holocaust in Russia,” Quarterly Journal of Economics, 126(2), 895–946.

Allen, R C (2003), “Progress and Poverty in Early Modern Europe,” Economic History Review, 56(3), 403–443.